House Prices Could Fall Another 40% From Here

[cockrobin]

So the best investment the bears can come up with is stamps

The best thing I did was selling to rent in 2007. Everyone said I was stupid to get off the ladder. The flat I sold is now worth 20k less than when I sold it in 2007. Property will fall further for one simple reason, it is over priced and in large part unaffordable. I will not buy property again until I can comfortably afford it, and neither will millions of other people on average wages. Only the rich or retarded are buying now, and only real spackheads are buying now to invest!

How can buying something that is depreciating in value be an investment?

More importantly, I have just heard that Michael Jackson has died!!!!

[andykn]

I dont understand your point as a FTB wouldn't generally buy an 'average' property, they get on the first rung so they buy cheaper than average.

I'd be interested to see the average wage of a FTB, the average deposit they put down and the average cost of a FTB property. Then we could compare the correct stats at the bottom end at least, see the wage multiples and stop arguing that the yard stick for measurement is all wrong.

Do we have these stats?

Many people on this site, the poster I was replying to included, think that prices must fall until the "average" house price equals "average" wage times 3 or 4, plus desposit.

They then compound this error by comparing median earnings with mean house prices.

One particular twerp then gets annoyed if this (or similar) errors are pointed out, so beware.

The trend in Average (mean or median) wages compared with house prices is useful, the absolute ratio, less so.

I believe that first time buyer stats are distorted by divorcees and the like who have more equity than a "real" ftb but still count as ftb'ers.

[andykn]

I dont understand your point as a FTB wouldn't generally buy an 'average' property, they get on the first rung so they buy cheaper than average.

I'd be interested to see the average wage of a FTB, the average deposit they put down and the average cost of a FTB property. Then we could compare the correct stats at the bottom end at least, see the wage multiples and stop arguing that the yard stick for measurement is all wrong.

Do we have these stats?

Many people on this site, the poster I was replying to included, think that prices must fall until the "average" house price equals "average" wage times 3 or 4, plus desposit.

They then compound this error by comparing median earnings with mean house prices.

One particular twerp then gets annoyed if this (or similar) errors are pointed out, so beware.

The trend in Average (mean or median) wages compared with house prices is useful, the absolute ratio, less so.

I believe that first time buyer stats are distorted by divorcees and the like who have more equity than a "real" ftb but still count as ftb'ers.

[Number79]

Many people on this site, the poster I was replying to included, think that prices must fall until the "average" house price equals "average" wage times 3 or 4, plus desposit.

They then compound this error by comparing median earnings with mean house prices.

One particular twerp then gets annoyed if this (or similar) errors are pointed out, so beware.

The trend in Average (mean or median) wages compared with house prices is useful, the absolute ratio, less so.

I believe that first time buyer stats are distorted by divorcees and the like who have more equity than a "real" ftb but still count as ftb'ers.

price ratios can not be taken seriously anymore anyway. Before, a house was purchased on a multiple of the mans wage as the only income. Now, both man and wife earn which has not only fuelled hpi over the last two decades but changes greatly the affordable ratio arguement.

average wage is just over 30k, so make that 60k for a couple and the affordable ratio arguement is dead in the water.

Would an str be classed as a ftb when purchasing again? that would screw the figures a little.

for the record, I think that house prices potentially have a long way to fall yet but not because of the longterm average multiple of salary.

[eric pebble]

I think you've made your point andypoos.... As usual it's just slightly biased by the fact that you're a BTL wannabe mogul.... And - as usual - it's difficult to follow your argument - or make any sense of it from an ORDINARY person's point of view.

I'm sure many of us on this site know many, many people who - when house prices weren't so insane and obsessed over - bought their properties for around 3 x their salary. This includes many people who bought a place to live for, e.g. £45k. I know of several people who earned £13-15k and bought such a place on the early to mid 80's, just before things went stupid. This is from the days when the bank manager just did NOT let you borrow what you couldn't afford. Those days are a distant memory of course.... And things have gone seriously downhill ever since.

Edited June 25, 2009 by eric pebble

[andykn]

That is 6% minus the 5.5% mortgage that must be paid regardless of whether there is someone in the flat paying £500p/m for the priviledge of living there!

The 6% is based on the landlord putting in 100% of the cash themselves. The less they invest themsleves the higher the gross yield.

[indirectapproach]

Another 40% off .....

Ummm ....

Errr....

You want to tell us something we dont't know about ..........

With data we are familiar with?

..........

There will be a bull fight.

And bulls get killed in bull fights.

[GBTOUSA]

The 6% is based on the landlord putting in 100% of the cash themselves. The less they invest themsleves the higher the gross yield.

You mean the less they have BORROWED the higher the yield?

[andykn]

I think you've made your point andypoos.... As usual it's just slightly biased by the fact that you're a BTL wannabe mogul.... And - as usual - it's difficult to follow your argument - or make any sense of it from an ORDINARY person's point of view.

I'm sure many of us on this site know many, many people who - when house prices weren't so insane and obsessed over - bought their properties for around 3 x their salary. This includes many people who bought a place to live for, e.g. £45k. I know of several people who earned £13-15k and bought such a place on the early to mid 80's, just before things went stupid. This is from the days when the bank manager just did NOT let you borrow what you couldn't afford. Those days are a distant memory of course.... And things have gone seriously downhill ever since.

I clearly haven't made my point as too many people still think that the average of nearly 30 million wage earners can buy a house that's the average of 17 million houses. And then eqaute median earmings with mean house prices.

As for your BTL wannabe accusation, that's stupid for two reasons:

1/ If  I was a BTL wannabe I'd want 3x average salary type property prices back

2/ Bruce Banner thinks I'm a professional VI and has a big problem with anyone who disagrees with any of his words of wisdom (to the extent he often manages to precis his entire wisdom into a single smiley, which can't really be disagreed with).

In the early to mid 80's 13-15k was well above average. What are these 45k places worth today?

An ORDINARY person will either be a ftb with deposit who will be buying a below average house or an owner with equity who may be buying an average house.

[Bruce Banner]

Bruce Banner thinks I'm a professional VI and has a big problem with anyone who disagrees with any of his words of wisdom (to the extent he often manages to precis his entire wisdom into a single smiley, which can't really be disagreed with).

andykn = Patprimer74

[athe]

I clearly haven't made my point as too many people still think that the average of nearly 30 million wage earners can buy a house that's the average of 17 million houses. And then eqaute median earmings with mean house prices.

In the early to mid 80's 13-15k was well above average. What are these 45k places worth today?

An ORDINARY person will either be a ftb with deposit who will be buying a below average house or an owner with equity who may be buying an average house.

This is all irrelevant as we have discussed before I think. Long term house price average is 3.5 times average wage. It has nothing to do with whether someone on the mean salary or the median salary or whatever is buying mean or median priced houses. It is just a convenient way of tracking affordability as the distributions of the two measures will be reasonably constant averaged over long time periods.

[athe]

3/ We have nearly 30 million wage earners and only 17 million owner occupied houses - "average" wages do not buy "average" houses.

You should allow for the proportion (maybe 20% or so - I'm not sure) of those 30M who rent. Then allow for the number of dual wage owner households as well.

The real problem is that even above average wages don't by average houses at the moment. My household income is in the top 10% according to IFS.org.uk. I own my FTB house with 100% equity. And I can't afford to move to the next rung of the ladder, without taking on more debt than I can afford (and probably more that the banks will lend at the moment).

Edited June 26, 2009 by apr400

[scuuzeme]

Many people on this site, the poster I was replying to included, think that prices must fall until the "average" house price equals "average" wage times 3 or 4, plus desposit.

They then compound this error by comparing median earnings with mean house prices.

One particular twerp then gets annoyed if this (or similar) errors are pointed out, so beware.

The trend in Average (mean or median) wages compared with house prices is useful, the absolute ratio, less so.

I believe that first time buyer stats are distorted by divorcees and the like who have more equity than a "real" ftb but still count as ftb'ers.

All you have to do is ask everyone you know the question "Could you afford to buy your house at the current market price"?

That will tell you all you need to know.

[eric pebble]

All you have to do is ask everyone you know the question "Could you afford to buy your house at the current market price"?

That will tell you all you need to know.

EXACTLY. I really don't get why antsinhispants so resents the 3.5 x rule?!

[winkie]

All you have to do is ask everyone you know the question "Could you afford to buy your house at the current market price"?

That will tell you all you need to know.

Also affordability is so much worse today than in the past due to other debts held; credit cards, student loans, car loans etc.

Income multiples are a guide but affordability of the majority that can buy will see that house prices still have a long slow steady slide downwards.

[PropertyGuru]

EXACTLY. I really don't get why antsinhispants so resents the 3.5 x rule?!

because he bought at 6x his own salary.

he's paddling up that brown creek fast, using just his tongue.

[righttoleech]

VIs will claim the statistics that illustrate their case, so arguments about whether, median, mode or anything else best represents salaries will go on like toothache.

Whatever measurement is chosen the important factor is discretionary disposable income. If food, heating, water, council tax etc take up 50% of your earnings against say 30% a decade ago, your ability to afford a mortgage or anything else is shafted.

[othello]

All you have to do is ask everyone you know the question "Could you afford to buy your house at the current market price"?

That will tell you all you need to know.

The market isd held together by FTBs (BTL is dead now). If they can't afford to get in the market is unsupported. Simple as that. A further 40% fall in real terms, is not unreasonable.

[MississippiJohnHurt]

I clearly haven't made my point as too many people still think that the average of nearly 30 million wage earners can buy a house that's the average of 17 million houses. And then eqaute median earmings with mean house prices.

An ORDINARY person will either be a ftb with deposit who will be buying a below average house or an owner with equity who may be buying an average house.

Why, with nearly 30 million people with an income and only 17 million owner occupied houses do you think that an average wage will ever buy an average house?

Do you know anyone who bought an "average" house as a FTB with only income multiple and deposit and no equity?

£16-18k is only a real wage in your head, even the median is 25k and the mean is nearer 30k.

If you distrust official wage figures, do you not think the average house now costs 120k too?

What is your point here Andy? The point of comparing wages to house prices is to gauge where we are in a cycle. All this talk of the "average wage not buying the average house" is meaningless, as I think you know.

Some people use the Nationwide ratios of wages to prices, which use average wage figures which you may dispute. However, it doesn't matter a jot what average wage figures are used, as long as people are comparing like with like, and have enough data to build a reliable historic series (both of which I believe the Nationwide data set provides). So when people such as yourself argue variations of the "average wage for home owners is higher", it doesn't mean that much really. The point is to use a long term reliable data to try and see where we are in that cycle today.

Or you could look at it all this another way, and try and explain the graph that's linked in my sig....

[eric pebble]

because he bought at 6x his own salary.

he's paddling up that brown creek fast, using just his tongue.

Ah!!! So THAT is why he's got such a blind spot about the whole thing ......

DENIAL, DENIAL, DENIAL, DENIAL.....[etc.]

[tim123]

VIs will claim the statistics that illustrate their case, so arguments about whether, median, mode or anything else best represents salaries will go on like toothache.

Whatever measurement is chosen the important factor is discretionary disposable income. If food, heating, water, council tax etc take up 50% of your earnings against say 30% a decade ago, your ability to afford a mortgage or anything else is shafted.

Though I think you're wrong to suggest that these other parts of someone's spending have became a bigger proportion.

Whilst it is true that council tax and energy costs have gone up, food, clothing, electrical items and crucially motoring costs have all come down by more

tim

[the flying pig]

It's still the case that no one I know who is in an ordinary job could afford to buy the house they own. Yet they all bought their places with a small deposit and similarish wages in the mid-nineties

That is all.

"job"? "wages"? how twentieth century of you.

these days the properdee market has an entirely new set of rules, all of its own, and is free from the shackles of tiresome old concepts like affordability. everyone can afford to buy a house since its value will go up by so damned much.

[abharrisson]

I have a lot of time for James Ferguson - he was warning against having money in Icelandic banks a few years back. Warned about Eire and warned that a complete banking collapse was going to happen.

http://www.moneyweek.com/investments/prope...here-14923.aspx

The trouble with all these theories is that none I think is anything like bullet proof from a predictive point of view.... Personally I think we are in a lull and the falls will continue but I just cannot buy into 40% MORE (that would make 60% in total)....... personally my outside is somewhere in the region of 30-35% but even then I have no clue whether that will be reached with meterioic falls over the next few months (a continuation of 2008 pace) or whether it will take ten years with inflation and time doing the majority of the work (like Japan). There will surely be a relationship between earnings and hpouse prices but what it is exactly is extremely difficult to get at and I ahve yet to hear a single theory that couldn't be shot down in flames quickly.... the answer maybe that on a national basis there is no measure that makes sense but there is some form of complicated measure that works at the local level and it may not be salaries, it may be household income, or it may be disposable income etc .

[MississippiJohnHurt]

It's still the case that no one I know who is in an ordinary job could afford to buy the house they own. Yet they all bought their places with a small deposit and similarish wages in the mid-nineties

That is all.

and that's the crux of it, right there.

[andykn]

andykn = Patprimer74

Did you not understand my simple challenge or did you bottle it.

Cowardly, like all good bullies.